Dollar rises, pound hits 7-week low as U.K. faces ‘hung parliament’

The U.S. dollar strengthened against major rivals on Friday, notably against the British pound, which fell to a seven-week low after the Conservative Party lost its parliamentary majority in the U.K. general election.

The pound
GBPUSD, +0.2098%
bought $1.2718, well off from late Thursday’s level of $1.2957 before the first indication of the election result was released.

Sterling fell to as low as $1.2636 earlier Friday, FactSet data showed, touching levels not seen since April 18, when U.K. Prime Minister Theresa May called a snap election to strengthen her hand in negotiations for Britain’s exit from the European Union. But Thursday’s election ended in a hung parliament, meaning no party won the 326 seats needed to form a majority.

Media reports Friday said May reached a deal with Northern Ireland’s Democratic Unionist Party to help prop up the Conservative Party’s weaker position.

“Clearly there is no panic yet, but should coalition talks fail and the prospect of another election prevail, I struggle to see [sterling] maintaining these levels and it would seriously harm the U.K.’s position in Brexit talks and create huge uncertainty,” said Craig Erlam, senior market analyst at Oanda, in a note to clients early Friday.

Analysts said the prospect of a so-called hung parliament, where no party holds a majority, was probably one of the worst possible outcomes, particularly as the U.K. was soon set to start negotiating Brexit terms with EU officials.

The pound
GBPJPY, +0.04%
fell against other crosses as well, sliding to ¥140.31 against the Japanese yen, from ¥142.54 in late trading Thursday. Against the euro
GBPEUR, +0.1002%
the pound hit at November lows, but pared losses to €1.1363. That is still down from €1.1553 late Thursday.

Foreign-exchange markets have waded through some tumultuous events this week: a Capitol Hill appearance by fired Federal Bureau of Investigation boss James Comey, who was probing Russia’s ties to members of President Donald Trump’s election campaign; the U.K. election and a European Central Bank meeting.

The U.S. dollar index
DXY, -0.11%DXY, -0.11%DXY, -0.11%
which compares the dollar with a half-dozen major rivals, rose 0.4% to 97.31 from 97.02 late Thursday. The buck ended the week 0.7% higher. The WSJ Dollar Index
BUXX, -0.12%
which measures the dollar against 16 currencies, rose to 88.66 from 88.31.

The euro
EURUSD, +0.1109%
drifted lower, buying $1.1192 from $1.1216 late Thursday. The euro had a volatile session Thursday after ECB President Mario Draghi said the central bank was ready to boost its asset-buying program if needed, though he said risks to the economic outlook were “broadly balanced.”

Against the yen, the dollar
USDJPY, -0.17%
bought ¥110.30, up 0.5% from ¥110.22 late Thursday in New York.

Analysts at Brown Brothers Harriman, in a note to clients said rising U.S. yields and the prospect of a interest-rate hike by the Federal Reserve at its policy meeting next week may encourage some repositioning, pushing the dollar higher against the yen, which tends to be viewed as a haven currency.

The 10-year U.S. Treasury bond yield
TMUBMUSD10Y, +0.87%
rose 2 basis points to 2.20% on Friday. Meanwhile, the Fed-funds futures are pricing in nearly 100% chance of a rate increase next week, according to CME Fed Watch Tool.

Elsewhere, the Canadian dollar
USDCAD, -0.1340%
jumped after government data showed the job growth in May was the fastest in eight months, coming well above expectations. Late Friday in New York, the dollar bought C$1.3453, down 0.4% from C$1.3506. Earlier this week, loonie plunged after a sharp drop in oil prices
US:CLN7
but Friday’s gains mostly pared those losses.

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